Monthly Archives: September 2011

Why Marketing Must be the Top Priority for New Businesses

Start-ups initially struggle to build a customer base. So, without a good marketing campaign, it’s simply impossible to stay in business. This should be obvious but it’s not always being practiced. Many new business owners focus more on the products and services rather than promoting them. This is a huge factor in causing most startups to fail in less than five years. Another issue is that many new business owners advertise through the traditional media channels in which the costs are too overwhelming. In this post, I will describe why your marketing must be direct to make it cost effective.

Before we jump in, let me state that being an accountant and income tax professional, I always get asked about tax planning and entity structure. Saving on taxes is important but is not a huge priority until you are making some money and have a steady income stream.

To begin, there is a world of difference between advertising and marketing. Marketing is not the same as spending a ton of capital to reach the masses through the traditional media channels. New entrepreneurs feel the need to “get their name out there”. The first problem with this is that traditional advertising is very expensive. The second problem is that branding your business takes time. A direct marketing approach can be much more cost effective. This is where you narrow your business to a target market. Then, your sales approach focuses on how your product/service benefits your potential customers (be sure to focus on benefits, not features).

Direct marketing could be done through attending networking events, social media, direct mail, or pay-per-click advertising. With traditional advertising, you generally pay large, flat fees. With direct marketing, you narrow your focus to only those who are in your target market. These could be people that fit a certain demographic. Or, they could type in a Google search looking for your product. By taking this type of approach, you avoid paying huge fees to appear in front of those who may never be interested in your product. In addition, there are no flat fees because the costs are directly proportional to the number of people you want to reach. For example, you can alter the number of people you send direct mail to. This makes it a variable cost. Another example is that you only pay when a potential customer clicks your online ad. You can even optimize your online ads so that you never spend over a certain dollar limit.

Finally, direct marketing is much easier to manage. You can’t manage what you can’t measure. How do you know how well a television ad is working? Certainly, you can try and ask everyone who comes in the door how they found out about your business. This is not possible in some circumstances. It’s also impossible to measure the impact on your company’s brand recognition. On the other hand, marketing online is easy to measure. You can track how many times your ad was shown versus how many people clicked on it. You can also find out what people are typing into the search engines to find your business.

By focusing on the numbers that you can measure, a few tweaks will raise your return on investment. You can spend more time and/or money on the marketing campaigns that are working and phase out those that are not performing.  If you’re selling products online directly, tracking through analytics will instantly tell your whether your income is positive or not.

There are many more ways to creatively market your business to the right audience. My two rules of thumb for promoting new businesses are: keeping marketing costs as variable costs and having a way of measuring the results.

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Filed under Small Business

Debt Restructuring for a Fresh Start

Debt restructuring is a process that allows individuals facing cash flow problems and financial hardship, to reduce and negotiate their outstanding debts in order to restore liquidity in order to make progress. Financial debt problems threaten large numbers of folks. Many companies offer financial debt restructuring and consolidation services. Debt restructuring and debt consolidation offers the opportunity to reduce debt, handle your finances and start all over again with additional understanding of management of your capital.

Many debt consolidation programs are useless because they just change the terms of your loans without of addressing the main issue which simply is too much debt. If fact, the wrong program can cause you to pay more money in interest and for a longer duration. This type of situation often involves ‘kicking the can down the road’ and doesn’t attack the root of the problem. You should have an accountant look over your financial situation before agreeing to a debt consolidation program.

There are times in which bankruptcy is your best option. Bankruptcy has a very negative connotation to it. This is unfortunate because it can give you the opportunity for a fresh start. For example, if you lose your underwater home in a bankruptcy, you’ll be eligible to purchase another home in just 2 years. This is good in the end because the next home you buy will likely be much cheaper. Therefore, the monthly payment will be much less. Also, you will have a clean balance sheet.

Many personal debt problems ultimately stem from having negative equity in their home. Attempting to pay down the loan is too overwhelming and simply makes no business sense. This is why you should approach your financial situation like a business. In many cases, restructuring is the only sensible option. There are definitely consequences involved. On the other hand, there are consequences of doing nothing and consequences of believing that paying your debts is a moral issue.

When there is no realistic change to pay off a debt, some form of restructuring is inevitable. This is the case for the Greek government. Greece has already accumulated so much debt that there is virtually zero chance of paying it off. Even if the government raises taxes, it will still be nearly impossible because the economy would collapse as a result of the tax increases. Your personal balance sheet is no different than that of a coporation or a nation.

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Filed under Finance, Real Estate

Things You Should Consider when Investing with Partners

Investing with a single partner or as a group is a challenging task. This will involve structuring the right entity as well as understanding the goals of every stakeholder. Having said that, investing as a group can be a success. You can take advantage of opportunities in which you would not otherwise have access to. Investments that require a huge capital investment would be completely out of your reach if you had to go it alone.

When investing with a group, you have more bargaining power. For example, let’s say the group enables you to bring a larger down payment to the table. With a larger down payment, you can take a tougher stance on negotiating on price and other terms. You will, in addition, have more alternatives simply because there are far more properties within your reach. Many of these properties are such that most competing investors cannot afford them because they are acting alone. Another important facet of this idea is that larger properties often have much better cash flow than a single family residence that you convert into a rental. As a side note, when economic conditions are healthy, it can be difficult to find a single family residence that offers good cash flow for a reasonable down payment. Multi-family properties, on the other hand, typically offer good cash flow.

Partnering with other investors can also help you diversify. Instead of using all of your own money in a single property, you can spread your money across different properties with your partners. This would protect you from an unanticipated occurrence wiping out your entire investment.

Next, you should consider the goals and motives of your partners. Everyone has slightly different expectations, so it’s vital that you continuously communicate with your partners. This is important not only before you decide to pool your funds and invest but also you need to maintain the relationship over time. No partnership is without legal risk. However, with good communication and relationships, you can reduce this risk considerably.

Finally, you need to decide on what business entity to form. You generally have three choices which are a partnership, limited liability company (LLC), or a corporation. A partnership, meaning the business entity not the act of forming a group, generally offers no liability protection. Therefore, it is best to either form a LLC or a corporation. A LLC is generally the easiest to form and has the fewest requirements with regards to formalities and record keeping. This is the best entity choice for most investors. However, the best choice will ultimately depend on your specific circumstances including your income tax situation. You should seek professional advice from both a legal and tax advisor.

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Filed under Investing, Real Estate